High Court denies Spain's challenge to sovereign immunity

7 minute read  13.07.2023 Beverley Newbold, Stephanie Brown and Justin Song

Australia's High Court has recently considered whether a foreign State had waived its immunity from the Australian courts.


Key takeouts


  • The High Court confirmed the Kingdom of Spain had waived its claim to foreign State immunity insofar as it related to the 'recognition' and 'enforcement' of an arbitral award.
  • The Commercial Court in the UK has recently supported the conclusions reached by the High Court, thereby strengthening and reinforcing the perception of Australia as an arbitration-friendly jurisdiction.                                  
  • Uncertainty remains on investor-state arbitral award 'execution'. Any party seeking to give effect to an award should be alive to further obstacles they may face.

In April 2023, the High Court of Australia (High Court) in Kingdom of Spain v Infrastructure Services Luxembourg SÀRL & Anor [2023] HCA 11 held that the Kingdom of Spain (Spain) had waived its foreign State immunity in Australia by entering into the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (otherwise known as the ICSID Convention). As a consequence of this lost foreign State immunity, the High Court confirmed that courts were able to 'recognise' and 'enforce', but not 'execute', an ICSID award against Spain for €101 million.

In May 2023, in a similar case before the UK's High Court of Justice (UK High Court), his Honour Justice Fraser supported the conclusion reached by the High Court. Whilst this decision can be hailed as affirming Australia's standing as an arbitration-friendly jurisdiction, award-creditors should still be aware of obstacles they may encounter trying to obtain an order from the Australian courts to execute an arbitral award.

Background to the dispute: High Court considers Spain and foreign investors

The proceedings before the Australian courts arose out of a dispute between Spain (the Appellant) and private foreign investors (Infrastructure Services Luxembourg Sàrl and Energia Termosolar BV, the Respondents) incorporated in Luxembourg and the Netherlands.

By way of background, in 1994, Spain, Luxembourg and the Netherlands signed a multinational agreement called the Energy Charter Treaty (ECT), which was designed to promote energy cooperation amongst contracting states.

In addition to entering the ECT, from 1997, Spain began to adopt legislation which sought to further develop its renewable energy sector by providing financial incentives to investors. In 2011, the Respondents invested €139.5 million in two solar power plants in the south of Spain.

Between 2012 and 2014, following a change in government, Spain began reversing the renewable energy incentives it had been providing investors, ultimately resulting in the Respondents commencing an investor-state arbitration pursuant to the ICSID Convention for breaches of the ECT. Spain, Luxembourg, the Netherlands and Australia are Contracting States to the ICSID Convention.

On 15 June 2018, the three-member arbitral tribunal found in favour of the Respondents, concluding that Spain had breached Article 10(1) of the ECT and awarded, amongst other things, €112 million to the Respondents as compensation. This compensatory amount was later rectified to €101 million (ICSID Award).

On 23 April 2019, the Respondents applied to the Federal Court of Australia seeking to enforce the ICSID Award as if it were a judgment of the Court.

Shortly after proceedings were commenced in Australia, Spain applied to ICSID for an annulment of the ICSID Award (which was later dismissed) and filed a Notice of Conditional Appearance to assert its immunity from jurisdiction, relying on section 9 of the Foreign States Immunities Act 1985 (Cth) (Immunities Act). Throughout the proceedings, the European Commission sought leave to be heard as an amicus curiae (meaning "friend of the court") to make submissions in support of Spain.

Relevant legislation and issues

The Australian proceedings largely concerned two legal instruments:

1. the ICSID Convention, an international treaty ratified by 158 Contracting States. Relevantly, the English text provides:

  • Article 53(1): an ICSID award shall be binding on the parties and each party shall abide by and comply with the terms of the award;
  • Article 54(1): each Contract State shall recognise an ICSID award as "binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State" [emphasis added];
  • Article 54(2): a party seeking recognition or enforcement of the ICSID award shall provide a copy of the award to a competent court of a Contracting State;
  • Article 54(3): the execution of the ICSID award is governed by the laws in the State whose territories such execution sought;
  • Article 55: nothing in Article 54 of the ICSID Convention shall be construed as deviating from the law of "any Contracting State relating to immunity of that State or of any foreign State from execution" [emphasis added]; and

2. the Immunities Act, which provides that foreign States are immune from the jurisdiction of the courts of Australia (section 9) unless they have submitted to the jurisdiction (section 10).

The central issues before the courts were:

  • whether Spain had waived its foreign State immunity by virtue of being party to the ICSID Convention; and
  • what is the correct approach as to 'enforcement', 'recognition' and 'execution' in the ICSID Convention?

The Previous Judgments in the Federal Court

The primary judge granted the Respondents (the then Applicants) leave to enforce the ICSID Award as if it was a judgment of the Federal Court. In reaching this decision, the primary judge concluded that as Spain was a Contracting State of the ICSID Convention, it had submitted to the jurisdiction of the Federal Court and waived any reliance of foreign State immunity from courts recognising and enforcing ICSID awards. The primary judge however found that the waiver of immunity had not extended to the execution of the ICSID Award.

Spain appealed the primary judge's decision. The Full Court of the Federal Court unanimously agreed that Spain had waived its foreign State immunity in respect of recognition of the ICSID Award but expressed doubt as to whether enforcement had also been waived. Like the primary judge, the Full Court found that this waiver had not extended to execution.

Spain appealed the Full Court's decision to the High Court.

Unanimous Decision by the High Court

The High Court dismissed the appeal, finding that Spain's agreement to articles 53 through 55 of the ICSID Convention amounted to a waiver of foreign State immunity from Australian courts and as such, was bound by the ICSID Award. Importantly, this waiver only applied to 'recognition' and 'enforcement' of the ICSID Award and did not extend to execution.

In reaching this conclusion, the High Court found that:

  • As it is so unusual for a foreign State to waive its immunity through a treaty, a high degree of clarity and necessity are required. As such, whilst international law principles require a waiver to be "express", the High Court observed that this did not preclude implications "invariably contained" within the text of the treaty. As such, Spain's waiver was "unmistakeable".
  • Acknowledging that the terms 'recognition', 'enforcement' and 'execution' are often used vaguely and interchangeably, the ICSID Convention clearly distinguishes between these terms. The High Court determined that:
  • recognition is an obligation to do no more than recognise the award as binding;
  • enforcement is an obligation enforce the pecuniary obligations imposed by the award as if it were a final judgment of a court in the Contracting State; and
  • execution refers to the means by which a judgment enforcing the award is given effect (such as measures taken against property of the award-debtor) and is determined by the domestic laws of the Contracting State.
  • Whilst on a literal reading of the ICSID Convention it appeared that the French and Spanish texts did not clearly distinguish between 'recognition', 'enforcement' and 'execution' like the English text, this interpretation would create inconsistencies in application. As such, the High Court confirmed that the best approach is to proceed as if there is no difference in meaning between the translated texts.

Consistency with the UK High Court

In June 2021, the Respondents also obtained an order from the Commercial Court in the UK which recognised the ICSID Award pursuant to the Arbitration (International Investment Disputes) Act 1966 (Order). Similarly to the Australian proceedings, Spain appealed this decision on grounds of foreign State immunity and lack of jurisdiction, as well as non-disclosure of the application by the Respondents.

On 24 May 2023, the UK High Court rejected Spain's appeal to set aside the Order, relevantly finding that Spain had submitted to the jurisdiction of the court by reason of its accession to the ICSID Convention. In finding comfort in the "integrity of international treaties", his Honour Justice Fraser acknowledged that the High Court and his analysis in respect of foreign State immunity were "consistent" and reached a "near-identical conclusion". No doubt, the decision by the UK High Court further strengthens and reinforces the reasoning of the High Court.

Implications of the Australian High Court's Decision

This decision has highlighted the complexities of investor-state arbitrations. Whilst it can be said that this decision continues to demonstrate that the Australian judiciary are relatively "pro-arbitration" and support international arbitration processes through recognising and enforcing arbitral awards, the High Court was silent on how award-creditors are able to satisfy their award in circumstances where foreign States are protected from any process or orders related to execution.

Until this question is given further consideration by the courts, it would seem that award-creditors are still able to rely upon exceptions outlined in the Immunities Act, including the possibility of recovering commercial property that is in use by the foreign State.

Beyond execution, foreign government stakeholders and private investors should be alive to the implications of the High Court's more liberal interpretation of section 10 of the Immunities Act. Given the judgment was arbitration-friendly, we will likely see an increase in parties seeking to recognise and enforce their ICSID awards in Australia.

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